For parents of a child with a disability, long-term planning looks a little different. You're not just thinking about retirement or college tuition. You're thinking about what happens after you, often decades into the future, and how to make sure your child is supported without losing the public benefits they depend on.
That's where special needs trusts come in. In general terms, a special needs trust is a legal arrangement that can let a person with a disability continue qualifying for means-tested benefits like Medicaid and Supplemental Security Income (SSI) while still receiving financial support from their family.
This article walks through how these trusts generally work in 2026, what's changed recently, and the planning questions parents tend to ask. None of this is legal advice. Special needs planning is highly technical, the rules vary by state, and small drafting differences can have major consequences. Anything you read here should be a starting point for a conversation with a qualified special needs attorney, not a substitute for one.
Why Direct Gifts to a Child Can Create Problems
Programs like SSI and Medicaid are means-tested. Eligibility depends on owning very little. In 2026, an SSI recipient generally can have no more than $2,000 in countable resources. That number hasn't moved in decades.
So consider a common situation. Parents leave $300,000 directly to an adult child with autism. The child receives it outright. Because the inheritance pushes them well over the resource limit, SSI and Medicaid eligibility can be affected. The day program they relied on may no longer be covered. The inheritance has to pay for things that public benefits would otherwise cover, plus housing and care. Over time, the money can be drawn down faster than expected, and rebuilding eligibility for benefits later isn't always simple.
That's the situation a special needs trust is generally designed to address. Money held in a properly drafted trust isn't counted as the beneficiary's resource for means-tested benefit purposes. The trustee can typically use it for things government benefits don't cover. Therapy that insurance won't pay for. Recreation. Travel. Adapted technology. Education. A better wheelchair. The trust supplements public benefits. It doesn't replace them.
How that gets structured for your family, though, is a question for a special needs attorney.
The Type Most Parents End Up Using: A Third-Party SNT
Federal law generally recognizes three categories of special needs trusts. As a parent funding a trust yourself, the one that usually comes up is the third-party special needs trust. The other two (first-party and pooled) are typically used when the child's own money funds the trust, such as an inheritance received outright or a personal injury settlement.
In general, a third-party trust has three big differences from the first-party version:
It has no age cutoff. It can typically be established for a minor child or an adult child. It can be funded now, at your death, or both.
It generally has no Medicaid payback. When the beneficiary eventually passes, whatever's left in the trust typically passes to the people you named in the trust. Siblings. Grandchildren. A charity. Whoever you choose.
It's flexible. Many parents set up the trust now as part of their broader estate plan, but don't actually fund it until death, often through life insurance, IRA beneficiary designations, or the residue of their estate.
If you have other children, this matters. A third-party trust is often the vehicle parents use to treat their child with special needs fairly without accidentally cutting them off from benefits. Their share goes into the trust. Their siblings receive their share outright.
Whether a third-party trust is the right structure for your family, and how it should be drafted, are decisions that should go through your attorney.
The Trustee Decision Is Bigger Than You Think
Most parents spend a lot of time thinking about how much to leave their child. They spend almost no time thinking about who will manage it.
That's backward. A perfectly drafted trust with the wrong trustee can fail. A simpler trust with the right trustee can run for forty years without a hiccup.
A special needs trustee has to understand SSI's in-kind support rules. They have to coordinate with case managers. They have to file separate tax returns for the trust. They have to know what the trust can and can't pay for without disrupting benefits. They have to make discretionary decisions about the beneficiary's quality of life year after year, often long after the parents are gone.
Parents generally consider a few options:
A sibling or family member. Cheapest. Most personal. But it asks a lot. Your other child already has a full life, and being a special needs trustee can mean weekly involvement for the rest of their life.
A professional trustee. Bank trust departments and specialized trust companies handle this work full-time. They cost more, but they don't move away, get divorced, get sick, or lose interest.
A co-trustee arrangement. A common compromise. A professional trustee handles the money and the rules. A family member acts as advocate and decision-maker on lifestyle choices. They check each other.
There's no universally right answer. The right answer depends on the size of the trust, the complexity of your child's needs, and the bandwidth of the relatives you'd otherwise lean on. Your attorney can walk you through what's typically used in situations like yours.
Write the Letter of Intent
This is the one piece of special-needs planning that families skip most often, and it costs almost nothing.
A letter of intent isn't a legal document. It's a written guide for whoever steps into your role after you're gone. The doctors and specialists your child sees. Medications and dosages. Routines that calm them down. Foods they hate. The friends and family members they actually trust. The phrase that gets through to them on a bad day.
Future trustees and guardians can't ask you these questions once you're gone. The letter answers them. Update it once a year. Keep a copy with your estate planning documents. Tell your future trustee where to find it.
How the Trust Pays for Things Without Hurting Benefits
This is where parents often get confused. The trust is intended to help, but spending it the wrong way can still trigger benefit cuts.
The general rule: the trustee typically pays providers directly, not the beneficiary. If the trust hands cash to the beneficiary, that cash can become a countable resource for SSI. If the trust pays the dentist directly, the dental work generally doesn't count.
A few specifics worth understanding at a high level:
Food no longer counts against SSI. This is a meaningful 2024 change. As of September 30, 2024, the Social Security Administration removed food from "In-Kind Support and Maintenance" (ISM) calculations. Before that, a trustee buying groceries could trigger a cut in benefits. Now it generally doesn't.
Shelter still counts. Rent, mortgage, property taxes, and utilities still generally fall under ISM. If the trust pays them, SSI can be reduced by up to the Presumed Maximum Value (approximately $351 per month in 2026, based on one-third of the SSI federal benefit rate plus $20). There are workarounds. The SSA expanded a rental subsidy exception to all 50 states in September 2024, which can preserve full benefits if structured correctly. How to actually structure it is something your attorney should handle.
Most other expenses are generally permitted. Therapy not covered by Medicaid. Vacations. Adaptive equipment. Computers and tablets. Cell phones. Tickets to events. Driver's training. Vocational support. A companion to travel with your child. The list is long, but trustees should still confirm specific spending decisions with the SNT attorney or a benefits counselor when in doubt.
Don't Skip the ABLE Account
If your child's disability began before age 46, they likely qualify for an ABLE account. These are one of the most useful tools in the special needs planning toolkit, and they pair really well with a third-party special needs trust.
Here's the background. ABLE stands for Achieving a Better Life Experience. Congress created these accounts in 2014 to give people with disabilities a way to save and invest without losing means-tested benefits. Think of an ABLE account as a cousin of the 529 college savings plan. The structure is similar. The contributions are after-tax, the money grows tax-deferred, and qualified withdrawals come out tax-free at the federal level. Wisconsin treats withdrawals for qualified disability expenses the same way at the state level.
Who qualifies. The big news for 2026 is that eligibility expanded dramatically on January 1. Under Section 124 of the SECURE 2.0 Act, the age-of-onset cutoff jumped from 26 to 46. To open an ABLE account, the disability or blindness must have begun before age 46. They don't have to be under 46 today. Someone in their 60s can open an account now if their disability started before age 46. The Arc estimates this expansion makes about six million additional Americans eligible, including many adults whose disabilities developed later in life from accidents, traumatic brain injury, multiple sclerosis, mental health conditions, or military service.
Eligibility generally requires either being entitled to SSI or SSDI benefits or having a disability certification filed with the IRS.
Contribution limits. The 2026 annual contribution limit is $19,000. That's a combined limit across everyone contributing. Parents, grandparents, friends, employers, and the beneficiary themselves. Whatever the source, total deposits can't exceed $19,000 in a calendar year. The limit is tied to the federal gift tax exclusion, so it adjusts upward over time.
There's an extra layer called the ABLE to Work provision. If the beneficiary is employed, they can contribute beyond the standard $19,000 cap using their own earned income. The extra amount is capped at the lesser of their annual earnings or the federal poverty level for a one-person household from the prior year. For 2026 contributions, that's $15,650 in the lower 48 states. ABLE to Work was made permanent under the One Big Beautiful Bill Act.
Resource limit rules. This is where ABLE accounts really shine. Up to $100,000 in an ABLE account is generally excluded from SSI's $2,000 resource limit. If the account ever exceeds $100,000, SSI is suspended (not terminated) until the balance drops back below. Medicaid eligibility, on the other hand, is generally protected up to the account's full balance, regardless of the account's size. Most state ABLE programs allow account balances up to $300,000 or more.
What ABLE money can pay for. The list of "qualified disability expenses" is intentionally broad. It includes education, housing, transportation, employment training, assistive technology, personal support services, health care, financial management, legal fees, funeral expenses, and basic living expenses. The key feature for many families: ABLE funds can pay for housing without triggering the ISM benefit reduction that hits special needs trusts. That's a meaningful advantage if rent or a mortgage payment is a regular expense.
How ABLE accounts pair with a third-party SNT. Families often use both, and they generally complement each other in a fairly natural way. The trust is built for long-term wealth, larger one-time expenses, and the ability to receive substantial gifts and inheritances from parents and grandparents. The ABLE account is built for day-to-day spending that the beneficiary or trustee wants to manage directly, including housing.
A common structure looks like this. Parents fund the third-party SNT through their estate plan. During the beneficiary's lifetime, the trustee periodically transfers funds from the SNT to the ABLE account, up to the annual contribution limit. The ABLE account handles rent, utilities, and routine expenses. The trust handles bigger items like a wheelchair-accessible vehicle, a vacation, or out-of-pocket medical care.
Other useful details. Only one ABLE account per beneficiary is allowed. Most states with ABLE programs (currently 46 states plus the District of Columbia) accept residents from anywhere in the country, so families generally have a choice of programs. Wisconsin doesn't have its own state-sponsored ABLE program, but Wisconsin residents can open an account through any state's program. 529 college savings plan funds can also be rolled into an ABLE account for the same beneficiary or a family member, subject to the annual contribution limit. The 529-to-ABLE rollover was made permanent under the One Big Beautiful Bill Act.
One word of caution. ABLE accounts have a Medicaid payback feature similar to first-party special needs trusts. When the beneficiary passes away, any remaining ABLE balance may be subject to a state Medicaid claim for benefits paid during the beneficiary's lifetime. This is one of the reasons why a third-party SNT remains important. Money in a properly drafted third-party trust generally is not subject to that payback, but money in the ABLE account may be. Coordinating which dollars go where (and when) is part of the planning conversation.
Whether an ABLE account makes sense for your family, and how to coordinate it with your other planning, are good topics to raise with your attorney and your financial advisor.
The Inherited IRA Question (Important for High Earners)
If a meaningful chunk of your wealth sits in 401(k)s or IRAs, this section is worth flagging for your attorney.
The SECURE Act of 2019 eliminated the lifetime stretch for most inherited retirement accounts. Most beneficiaries now have to empty the account within 10 years. For a beneficiary on SSI and Medicaid, a forced 10-year payout could push them well past every benefit threshold.
There's an exception for beneficiaries with disabilities. They can generally stretch the distributions over their lifetime instead of being forced into the 10-year payout. To capture that benefit through a trust, though, the trust has to be drafted a specific way. SECURE 2.0 also added more flexibility in 2022, making it easier to include a charity as a backup beneficiary without losing the lifetime stretch.
If your current special needs trust was drafted before 2020, it probably doesn't address any of this. It's worth asking your attorney to review.
Mistakes Parents Make Most Often
A few patterns come up regularly:
Naming the child directly on a life insurance policy or retirement account. Beneficiary designations override your will. If the policy goes to the child rather than the trust, the plan can unravel.
Not coordinating with grandparents and other relatives. A well-designed plan can be undone if Grandma writes a $25,000 check directly to her grandchild for graduation. The family needs to know the rule: gifts go to the trust, not to the child.
Using a basic boilerplate trust. Most generic trust templates are "support" trusts, where the trustee is required to provide for the beneficiary. That kind of language can disqualify the beneficiary from means-tested benefits. A special needs trust typically needs to be a "supplemental" trust with discretionary distributions, and the precise wording really does matter. This is not a place to cut corners with online templates.
Putting off the planning. Life is unpredictable. Plans only work if they're in place before they're needed.
Not reviewing the plan as your child ages. A trust drafted when your child was 5 may not fit when they're 25. Their abilities change. Their needs change. The law changes. A periodic review with your attorney every few years (and after every major life event) is a good habit.
A Quick Note for Wisconsin Families
Wisconsin generally follows the federal framework for special needs trusts. A properly drafted third-party SNT is typically not subject to estate recovery by the Wisconsin Department of Health Services, because the money was never the beneficiary's to begin with. State-specific rules can apply to the trust's administration, and those are best reviewed with a Wisconsin attorney who handles special needs work.
One quiet advantage for Wisconsin families: Wisconsin has no state estate tax and no state inheritance tax. With the federal estate tax exemption now permanently set at $15 million per person under the One Big Beautiful Bill Act, most Wisconsin families can fund a third-party special needs trust without federal transfer tax concerns either.
Special needs planning sits at the intersection of estate, tax, and benefits law. The drafting should really be handled by an attorney who regularly works in this area. Generic estate-planning software won't capture SSI nuances.
Where to Go From Here
Special needs planning works best when your attorney and your financial advisor are coordinating, not working in separate silos. The trust documents are the foundation, but the financial picture around them is what makes the plan actually work.
If you already have estate documents in place, pull them out and look for the words "special needs" or "supplemental needs." If those words aren't there, your plan may benefit from a fresh look with your attorney. If they are there, check the date. Anything drafted before 2020 likely doesn't reflect the SECURE Act, SECURE 2.0, the 2024 SSA rule changes, or the 2026 ABLE expansion.
From there, the coordination matters. Your attorney handles the trust drafting, the legal structure, and questions about state-specific rules. Your financial advisor handles the components that keep the trust functioning over time. Are your investment, retirement, and insurance accounts titled and designated correctly? Is the trust named properly as a beneficiary where it should be? Is there enough life insurance to fund the trust at the level your family is counting on? Are the investments inside the trust positioned for a beneficiary whose time horizon might be decades long? Does the broader financial plan reflect the reality that you may be providing for your child for the rest of your lives and theirs?
These are the conversations that often get missed. Families spend money on excellent trust documents, then leave the surrounding financial plan unchanged. Or they update their investments and beneficiary designations without telling the attorney, and find out years later that the documents no longer match the accounts.
A few practical things worth coordinating:
Make sure your attorney and financial advisor have each other's contact information and your permission to talk directly. The best planning happens when the two of them can pick up the phone.
Review beneficiary designations on every retirement account, life insurance policy, and annuity at least once a year. These override your will, and they're the first place special needs planning gets undone.
Build a single place where all of this lives. The trust documents, beneficiary designations, ABLE account information, letter of intent, and contact list for your professional team. Tell your future trustee where to find it.
Good planning today can ripple forward for decades. The trust set up now may be the thing that lets a child with a disability live a fuller life long after their parents are gone, but only if the financial plan behind it stays current.
Sources
- Social Security Administration, "Fact Sheet: 2026 Social Security Changes." https://www.ssa.gov
- Social Security Administration, "Understanding Supplemental Security Income (SSI) Benefits." https://www.ssa.gov/ssi/text-benefits-ussi.htm
- Social Security Administration, "What's New in 2026? The Red Book." https://www.ssa.gov/redbook/newfor2026.htm
- Social Security Administration, "Spotlight on Achieving a Better Life Experience (ABLE) Accounts." https://www.ssa.gov/ssi/spotlights/spot-able.html
- 42 U.S.C. § 1396p(d)(4)(A) and § 1396p(d)(4)(C).
- Social Security Administration, "Omitting Food From In-Kind Support and Maintenance Calculations," Final Rule, effective September 30, 2024. https://www.federalregister.gov/documents/2024/03/27/2024-06464/omitting-food-from-in-kind-support-and-maintenance-calculations
- SECURE 2.0 Act of 2022, Section 124 (ABLE Age Adjustment Act), Public Law 117-328.
- IRS Revenue Procedure 2025-32, 2026 inflation-adjusted amounts (annual gift tax exclusion and federal estate tax exemption).
- Internal Revenue Code § 401(a)(9)(H)(iv)-(v), Applicable Multi-Beneficiary Trust rules.
- Internal Revenue Code § 529A, Qualified ABLE Programs.
- ABLE National Resource Center. https://www.ablenrc.org
- The Arc of the United States, ABLE account eligibility guidance, 2026.
- Wisconsin Department of Health Services, Estate Recovery Program. https://www.dhs.wisconsin.gov/medicaid/erp.htm
- One Big Beautiful Bill Act, Public Law 119-21 (signed July 4, 2025).
Disclosure
This article is for general educational purposes only and is not legal, tax, or investment advice. Special needs trusts and ABLE accounts are complex tools governed by federal and state laws that change over time and vary by state. The rules summarized here are general in nature, may not apply to your situation, and are not a substitute for advice from a qualified special needs or estate planning attorney. Before establishing, modifying, or funding a special needs trust or ABLE account, please consult with a licensed attorney and tax professional who can review your specific circumstances. Dreyer Wealth Management does not provide legal or tax advice.